Half year Sole Proprietor and half year S-corp

Hello wubeibei

Assuming you filed Form 2553 this year, and have received a letter from the IRS accepting your S-Corp election, then for the 2024 tax year, you will be treated as an S-Corp. Since you applied for S-Corp status this year (2024), your new entity status will not impact your 2023 tax return, being that, you filed as a sole-proprietor based on what you have mentioned. Section 179 recapture will apply if you stopped using the business assets before the end of their useful life for whatever reason (assets were sold, destroyed, or stolen) or the use of these assets for business purposes dropped below 50%. If either of these criteria do not apply, then there is no Sec 179 depreciation recapture, since you are just transfering the assets to the S-Corp, hence, meaning these assets are still being used for business purposes. 

I hope this helps

As you became an S Corp part way through the year, you will report the business transactions for the first half of the year on your personal tax return, Schedule c.  For the last half of the year you will now report the business transactions on Form 1120S, U.S. Income Tax Return for an S Corporation.

As for how assets are handled for the transition, it depends on how the "Transition" occurred. Were you originally a Single Member LLC being taxed as a sole proprietor, and elected S Corporation tax treatment part way through the year (i.e. it's the same legal entity, but you just elected to be taxed differently)? Or did you create a new entity mid-year and contribute the assets to the new entity?  If you created a brand new entity, then technically you have to segregate the two businesses - your old business, operating as a sole proprietor, stopped doing business.  What happened to the assets of the old sole proprietorship? Did you sell them to the new legal entity? Did you just contribute them to the new legal entity? The tax treatment will depend on how you "changed" from sole proprietor to S Corporation and whether it's still the same legal entity (just taxed differently) or if it's a new legal entity.